NICHOLAS GRUEN. All finance requires is an upgrade for the internet age

The Financial  Times has published a letter from Nicholas Gruen in response to Martin Wolf’s column about the Swiss ‘sovereign money’ referendum, previously reprinted on this blog).  Mr Gruen’s letter is as follows:

Given the resounding ‘no’ from the Swiss Vollgeld or ‘sovereign money’ referendum, and notwithstanding Bob Sleeper’s relief, Martin Wolf’s central question from last week’s column remains. A decade after the devastation, where’s the “radical rethink” of finance?

Mr. Wolf was kind enough to mention my own alternative plan which does nothing more than simply upgrade the existing public private partnership that is banking for the internet age.

Today central banks provide wholesale utility banking services to commercial banks, who then retail them to all. Just as Barclays and Lloyds can now, in my plan anyone could deposit funds with the Bank of England and use those funds to pay other account holders. They could also borrow from the Bank of England if it entails minimal risk. I’ve suggested lending up to just 60 percent of the value of a home mortgage. As with Barclays and Lloyds, interest would be paid on deposits and loans at Bank Rate.

These arrangements:

  • Generate tens of billions of pounds in government revenue from mortgage payments to the central bank;
  • Slash home loan interest rates on super-safe lending (whilst increasing them for the – still privately provided – riskier lending over 60 percent of a property’s value);
  • Help grow a payments system less vulnerable to commercial bank insolvency and the attendant giveaways to plutocrats;

We’ve been here before.

In 1844 only commercial banks issued retail banknotes. Despite one parliamentarian’s warning of the “disastrous consequences” of government involvement in banking, Bank of England banknotes largely displaced the risk, fragmentation, and cost of the alternative. This led commercial banks to focus on where they could add the most value in funding commercial credit and pricing the attendant risks.

All we need to do now is replicate that move for the internet age.

Nicholas Gruen
CEO, Lateral Economics, Visiting Professor at Kings College London Policy Institute.




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2 Responses to NICHOLAS GRUEN. All finance requires is an upgrade for the internet age

  1. Thanks John,

    Whenever anyone tells me they’re in the possession of the “the one true” anything I reach for my gun (metaphorically speaking and in the nicest possible way of course!) When it’s the “the one true mechanical explanation of macroeconomics” I really start to head for the exits.

    As Robert Solow puts it. Sometimes I think it is only my weakness of character that keeps me from making obvious errors.

  2. John Doyle says:

    Hello, Nicholas, your idea of converting the BoE into having commercial transactions is quite a different action from that the BoE does now with the government. Britain, luckily, kept its monetary sovereignty when it joined the Eurozone. The Treaty of Lisbon imposed conditions, but in effect the government is free to create currency for itself. It just has to sell gilts to match the deficit. Beyond that it’s free.

    The UK government therefore gets ZERO revenue from the bank, and it has zero need of loans or borrowings . Any that exist are voluntary operations. The Government is not in the business of profit making. That belongs in the commercial sector.

    It seems lost from sight that the public does not fund the government. The [sovereign] government funds the public. It alone can create its currency and it has to spend first before any taxes are levied [obviously] As it creates, so it can destroy, which is what happens with taxes. Taxing cuts spending and is one way the economy can be managed.
    All this is clearly outlined in MMT, the one true mechanical explanation of macroeconomics

    Before any schemes are cooked up for a safer economy, it is vital the current workings are reorganised to truly effect of monetary sovereignty.

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